A lot of indicators are pointing to a continued rally in the market. During this Q2 earnings season, 74% of companies have beaten their estimates. 10-year US treasury bond yields have also dropped significantly since their peak from 3.5% on June 15^th to 2.83% today. We have also seen the cost of capital for corporations continue to drop over the past four weeks as reflection of the decrease in these yields. Furthermore, the VIX index (the CBOE volatility index) is at its lowest level since April.

 

Despite all of these positive indicators, we cannot be sure of a new bull market until we are confident that the Federal Reserve has reached its final interest rate hike. The fact that inflation appears to be peaking bodes well for this scenario sometime in September or October.

 

One negative indicator that does give us some concern is the earnings estimate breadth. The chart below shows the percentage of the S&P 500 constituents with positive three month change in earnings estimates. As you can see, only 33% of the companies have revised their estimates higher. This is a leading indicator and although it can change quickly, it is a red flag that suggests we may not be completely in the clear just yet.

 

 

I have also included our CIBC Monthly World Markets Report.

 

As always, if you have any questions free to give us a call anytime.

 

I hope everyone has a great weekend.

 

Milan